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Experts: Without Sufficient Subsidies, Health Care Reform Could Burden Millions

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For weeks now, the health care debate has largely centered around the public option and its political feasibility. But some policy experts are concerned that a separate shortcoming of the health care plans under consideration could be damaging to working- and middle-class people. It's a substantive problem only gets worse if there's no public option, and could become a political disaster for Democrats.


Government premium subsidies and limits on patient cost-sharing are critical components in the Democratic approach to help more people afford private insurance. The financial support from the House bill would offset costs for as many as 27 million low- and moderate-income Americans, both those lacking coverage and those struggling to afford their existing policies, according to the Congressional Budget Office.

In July, the House Energy and Commerce Committee reduced the portion of premiums the government would subsidize. This month, under pressure from Republicans and conservative Democrats to draft an even less expensive bill, the Senate Finance Committee may also lower the maximum annual income a family could earn to qualify for subsidies, from four times the federal poverty level (about $88,000 for a family of four) to three times of poverty ($66,000 for that family). That would mean millions of Americans would have no possibility of being eligible for subsidies....

But reducing subsidies too much could threaten the entire architecture of the Democratic health care overhaul strategy. The major bills pending in both the House and Senate require everyone to obtain health insurance. Without adequate financial support to buy insurance, millions of people would have to be exempted from the mandate and left out of the pool for insurers to spread their risk between healthy and unhealthy enrollees. A diminished pool would make it hard to lower premiums for everyone, and for Congress to require insurers to sell policies to everyone regardless of their condition. It might also jeopardize the measure's political viability.

Along the same lines, if subsidy levels are lowered and premiums are higher as a result of a diminished pool then even those who do get government assistance will be required to pay the difference. That scenario is all the more likely in absence of a public option. And for many individuals and families, the difference could amount to hundreds of dollars a month.

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24 comments

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September 4, 2009 10:59 AM   

This is what many of us have been trying to explain for months to some of you who insist on swallowing whatever Koolaid the Democorporate party chooses to dish out (and on excoriating the DFHs who have more sense than you.)

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September 4, 2009 11:13 AM    in reply to Steve LaBonne

Really? Maybe your explanations would get through if you, you know, actually explained things instead of just insulting people who don't mouth the approved talking points of the FDL Politburo.

I agree that a strong system of subsidies is probably the most important aspect of this bill... which is why I'm curious why "progressives" have allowed Senators to slowly hack away at it while they myopically invest everything in promoting a fairly limited public insurance program.

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September 4, 2009 11:14 AM    in reply to Stroszek

I don't try to explain things to my dining room table, either.

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September 4, 2009 11:20 AM    in reply to Steve LaBonne

That's because your dining room table would kick your ass in a health care debate.

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September 4, 2009 11:30 AM    in reply to Stroszek

I've forgotten more about health care economics than you'll ever know. I'm aware, for example, as you evidently aren't, that the systems that rely heavily on private insurance- particularly Germany's and Switzerland's- are the next most expensive in the world after our clusterfuck.

The most cost-effective way to deliver quality care is direct state provision a la our VA and Britain's NHS. (The latter is clearly seriously underfunded yet STILL delivers mid-ranking results by European standards, and markedly better public health statistics than the US.) Since that probably wouldn't fly here, expanding our Medicare into Canada's version would be the next best way to go, and no more difficult to have done politically than triggering the very same opposition that Medicare for All would have generated in behalf of a Frankenstein's monster that only a policy wonk could love.

But you don't want explanations, you don't want to think, you just want to keep on fellating the Democorporocrats and bashing the DFHs. Brain-dead.

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September 4, 2009 8:25 PM    in reply to Steve LaBonne

Steve: You can't argue with a dining room table -- or a corporatist DLC troll. Time to call 'em what they are.

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September 4, 2009 11:34 AM    in reply to Stroszek

You know, people would be a lot more willing to listen to you if your posts consisted of more than just, "I'm right, I'm right, you're wrong, I'm right, you're stupid, you shithole, I'm right."

Look back at this exchange in this very comments thread. If all you can do is insult the person you're talking to, you'll never get anything done. We need better than grade-school level debate, here.

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September 4, 2009 11:00 AM   

Driving the uninsured to private insurance companies thru a democratic party controlled congress is just plian nuts. This appraoch will will ruin the democrats for 2010 and beyond. It is time for a new political alignment of national parties: conservatives, corporatists and progressives. Fix campaign finance reform and have alittle democracy back in gov't.

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September 4, 2009 11:06 AM   

This is indeed the dilemma Democrats face: if they try to force people to buy costly insurance without adequate subsidies, they will create a sure backlash for themselves. If they do not get everyone into the system, it cannot be reformed significantly. The single most important reform issue is the size of the subsidies to lower-middle income Americans, and if these are not sufficient, there perhaps should be no legislation at all.

As an analyst, I now think that failure is likely here -- the tenth time in a hundred years.

Theda Skocpol

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September 4, 2009 1:28 PM    in reply to Theda Skocpol

Well, that' depressing to hear from someone who knows more than I do.

Whenever I've thought things looked good and reform was really going to pass, my next thought has always been, "Oh, sh*t, I hope it works." Passing bad legislation would be a disaster.

While not passing bad legislation is good policy, the lack of any legislation spells political doom in 2010 at the very least.

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September 4, 2009 1:33 PM    in reply to Theda Skocpol

What is the Massachusetts experience? They are being forced to have a serous discussion about cost control now, isn't that right?

Is it a success, failure, or work in progress?

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September 4, 2009 11:07 AM   

There is one way a 'medicare for all public option' and private insurers can exist in the same market (assuming we are worried about the fate of insurers).
The insurers would have to borrow, perhaps at subsidized low interest rates from the government, and buy back all their shares from shareholders, delist from stock markets and become mutual companies owned by policyholders.
In the current model they are trying to serve two masters(well, not really trying that hard), shareholders and patients. This is and will only become more unsustainable.

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September 4, 2009 11:20 AM    in reply to trblmkr

There is one way a 'medicare for all public option' and private insurers can exist in the same market (assuming we are worried about the fate of insurers).

We shouldn't be. "Medicare for All" would have been an easy to explain expansion of an already highly popular program. Instead of realizing that ANY proposal that didn't merely deliver taxpayer dollars and captive customer to the insurers would be met with tooth-and-nail resistance from them and that therefore they might as well fight for the real McCoy, the Democrats chose to pick the very same inevitable fight over this mishmash rather than over the one proposal that actually would have worked to provide universal coverage at sustainable cost and that the public could have grasped immediately. This whole exercise has been yet another tragic missed opportunity.

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September 4, 2009 12:07 PM    in reply to Steve LaBonne

I agree on what would have been optimal but what's wrong with trying to come up with solutions that use where we actually are now as a starting point? It seems to me this, like almost everything else, is about money.
Both the managements and the shareholders of publicly listed health insurers wouldn't mind being bought out if the premium was sufficient.
Making them into unlisted mutual companies(which is what all insurers used to be)puts the emphahsis solely on policyholders AKA patients.

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September 4, 2009 1:30 PM    in reply to Steve LaBonne

I agree that every version of single payer is easier to explain to people.

But it is also true that Medicare has no catastrophic coverage, that out-of pocket expenses are 30% or more of income for about a quarter of it's beneficiaries; that it's costs are increasing at 8% a year or so; that a beneficiary will spend two times as much in McAllen as in El Paso; that it's payment policies encourage quantity of care over quality of care, and that we have not really reached a public agreement on raising the amount of tax revenue necessary to keep it adequately funded for the long-term.

And anytime you want to make Medicare coverage more generous it will cost us more and the distribution of transfer will be from rich to poor and health to sick. It's the same problem. The only difference is level.

Which gets us back to how we control costs. Most people seem to agree that we overspend by about 1/3 or close to $600 billion a year (making the claim that this is unaffordable absurdly ridiculous). What's interesting is that there at least 4 or 5 theories about how to reclaim the same 30% (I'm not sure they all make the same claim about keeping quality of care as good or better):

-get rid of excess administrative costs & profits
-impose wage and price controls
-make delivery of care more efficient
-make people healthier
-make insurance more expensive so people spend less
-limit malpractice so doctors don't have to be so defensive.

They can't all be right about saving the same 30%. People tend to place their bets on any particular one usually as matter of belief and preference rather than evidence. Probably each of those things will matter to some degree. But it does seem like there is a major gap in the willingness to believe that the cost of change in each or all of those directions is worht the benefit.

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September 4, 2009 11:23 AM   

The two questions are intertwined. With a public option, premiums (for both public and private insurance plans) will be less than they would otherwise, so it will take fewer federal dollars to subsidize more people. As so many have mentioned before, this is exactly why the deficit hawks should be championing the strongest possible public option and why their failure to do so exposes them as unprincipled hypocrites who are really just shilling for the insurance industry.

Another place where they connect, as I see it, is political. If Obama and congressional Dems compromise away the public option -- which I think would be a hideous mistake, but does appear increasingly likely -- the quid pro quo should be expanded subsidies so that everyone really can afford comprehensive family health insurance. But unless the other side (Blue Dogs, Olympia Snowe?) are willing to give on this question, there absolutely should be no deal.

After all, compromises only work when both sides are willing to give. So far it seems they've only been going one way -- the wrong way.

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September 4, 2009 11:24 AM   

Yes, exactly. Don't force Americans to buy crap insurance.

Ezra Klein reported that there's a split in the White House between the policy team and the political team. The policy team wants a scaled back bill, under the theory that subsidies can be increased later. The political bill wants an extremely scaled back bill that just increases Medicaid and does some insurance reforms.

Provided that the latter approach drops the individual mandate -- and that I had to choose between these rotten options -- I'd go with Rahm's team on this one. Better half a loaf than a poisoned loaf.

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September 4, 2009 11:26 AM   

Single-payer, baby. Single-payer.

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September 4, 2009 11:27 AM   

Yes, this is where the discussion should be: On the nuts and bolts and how things will and won't work. Unfortunately, since there has been no concrete bill to discuss, the Oligarchists have used the Toy Crazies to hijack the debate. That has served them well so far. And that is why it is critical for Obama to be clear about what he will insist upon. The public option isn't some appendage that can get lopped off without consequence (like, say, a pinkie tip). The public option is what makes the reform package work.

It appears to me that the Oligarchists have concluded the following: 1) some legislation will pass; 2) the line in the sand is the public option and that is what they have targeted; 3) without a public option -- even with a public option "trigger" -- the Oligarchists win. Why? Because they know that any such feeble reform will fail and damage teh Democrats, that the Republicans will re-gain power, and their problems will be solved. Meanwhile, the entire country is forced to become their customers through the so-called reform. Not bad, huh?

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September 4, 2009 11:54 AM   

Brian,

thanks for elevating the debate. This is what Talking Points Memo does best:

excellent reporting

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September 4, 2009 11:56 AM   

This is right. If the subsidies aren't adequate and the regulations don't have teeth, we have just delivered lower- income people to the insurance jackals. But this is what the Blue Dogs would saddle us with because they fundamentally don't believe in taxing the rich to subsidize lower-income people, and they won't agree to cost-cutting measures like the public option or curbs on reimbursement. If the choice is between that kind of "reform" and nothing, I'd say take nothing and start over with "Medicare for All."

The small minds in Congress and the Administration are a real disappointment. You'd think we could do better than this.

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September 4, 2009 1:40 PM    in reply to Mimi katz

While you're right on a lot of levels, the Medicare for All discussion you advocate will not occur for at least another decade.

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September 4, 2009 12:59 PM   

Agree, the kind of reform I see looming, at least from the breathless reporting of daily verbal burps from the politicians, is the worst possible outcome -- worse than NO reform, because it will include half of the equation, the part that says the more people in the insurance pool, the cheaper it is for all, while eliminating the other half, the part where affordable health care is GUARANTEED.

I'd like to think subsidies are the compromise we can live with, but they've already been scaled down thanks to the GOP, will likely be scaled down more to satisfy the rest of the GOP, and will never ever keep up with the cost of living in the future. (See: Wage, minimum)

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September 4, 2009 1:59 PM   

Without adequate financial support to buy insurance, millions of people would have to be exempted from the mandate ...

Exempted? How? That's the first I have ever heard of such a thing. Did Kaiser just make that up?

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